CALIFORNIA ATTORNEY'S FEES

Arbitration, Fee Clause Interpretation, Indemnity: Narrow Fee Clause, Allowing Recovery In Arbitration Only, Did Not Confer Fee Recovery For Fees Relating To Litigation

Indemnity Clause Gave No Basis For Fee Recovery, Because It Was Unilateral In Favor Of Unsuccessful Party, Not Allowing For Fee Entitlement--$628,587.50 In Fees Went Away!

            In Club Acacia Community Assn. v. Professional Community Management of California, Inc., Case No. G056313 (4^th Dist., Div. 3 July 11, 2019) (unpublished), a long-time dispute between an HOA, property manager, and contractor over the problematic installation of a fire alarm system at a condominium building resulted in property manager being found liable to HOA for $88,500 after allocation of comparative negligence against HOA and contractor in litigation, but no one pursuing claims in arbitration.  There were two potential fee entitlement provisions: (1) an arbitration clause, but fees to the prevailing party only applied to an arbitration; and (2) an indemnification clause between HOA and property manager, in favor of property manager, for claims arising out of performance of the HOA-property manager contract.  Eventually, the lower court awarded HOA fees in the amount of $628,587.50 against property manager based on the arbitration clause.  Property manager appealed the fee award, to its credit.

            First of all, the indemnity clause did not allow for fee entitlement.  An indemnity clause is not made mutual by operation of Civil Code section 1717, such that HOA could not get fees, because it only favored property manager.  (Building Maintenance Service Co. v. AIL Systems, Inc., 55 Cal.App.4^th 1014, 1029 (1997).)

            Most importantly, the arbitration clause only applied to arbitration activities, such that the litigation attorney’s fees award went POOF!  Respondent HOA offered numerous theories—conduct of the parties and drafting party adverse ambiguities (contra proferentem) arguments—but they were to no avail, based on the unambiguous language that only arbitration fees were to be awarded.  So, in the end, $628,587.50 in adverse fees went away on appeal, in a 3-0 unpublished decision authored by Justice Moore.

Fee Clause Interpretation: “Collection Costs” Fees Clause Of A Narrow Nature Was Interpreted Against Drafting Party And Did Not Include Fees For Defending Counterclaims

Fee Award Remanded For A Restudy, But A 50% Reduction For Overlitigation By Prevailing Party Likely Stands On Remand.

           To take us back to law school days, contra proferentem is Latin for interpreting a contract against the drafter.  That principle was at play in contractual interpretation of the scope of a lender fees clause in Cavalry SPV I, LLC v. Watkins, Case No. D072299 (4^th Dist., Di. 1 July 1, 2019) (published).

            Lender prevailed in a debt collection dispute, including turning back tort and other claims based on borrower’s cross-complaint (counterclaims).   The operative fees clause said this: “Collection Costs.  To the extent permitted by law you are liable to us for our legal costs if we refer collection of your account to a lawyer who is not our salaried employee.  These costs may include reasonable attorney’s fees.  They may also include costs and expenses of any legal action.”  Based on this clause, the lower court awarded lender its costs of prevailing on the debt and in defensing plaintiff’s cross-claims.  The fee award was $134,604.86, with reductions for overlitigation by the lender.

            The 4/1 DCA reversed and remanded based on the conclusion that fees clause did not allow for recovery of work relating to the defense of counterclaims.  The appellate court agreed that the provision was not broad enough to encompass this work, because the counterclaims were much more than a legal action “to collect on the account.”  Given the clause appeared in a one-sided adhesion contract, the terms had to be construed against lender.  However, because the matter had to be remanded anyway, the appellate court did not adopt the 50% reduction for overlitigation per se, although indicating that it could be considered again upon the “re-do.”

Fee Clause Interpretation, Prevailing Party, Section 998, Section 1717: In A 2-1 Split Decision, 2/5 DCA Affirms $28,000 Contractual Fee Award To Prevailing Tenants Based On An Entered CCP § 998 Judgment And On Residential Lease Fee Provisions

Majority And Dissenting Justice Disagreed On The Meaning Of A $500 Fee Cap Provision When Another Provision Discussed Additional Fees Being Within Play.

            We know from 511 S. Park View, Inc. v. Tsantis, 240 Cal.App.4^th 44, 48 (2015) [discussed in our October 10, 2015 post] that courts will honor a contractual “cap” of fees set forth in the language of the fees clause itself.  The next case involves a residential lease with both a “capped” provision and another provision talking about additional fees being available in some situations.  The interpretation of those provisions actually produced a split decision by the 2/5 DCA in Beloit & Associates, Inc. v. Michael, Case No. B286460 (2d Dist., Div. 5 June 21, 2019) (unpublished).

            Plaintiff landlord and defendants/cross-complainant tenants got into a residential lease dispute, resulting in both a complaint and a cross-complaint (with the main dispute apparently centering on a security deposit).  The lease had a primary fees clause with a $500 cap and another fees clause allowing additional fees to landlord if a dispute could not be worked out under certain specified situations.  Ultimately, landlord accepted tenants’ CCP § 998 offer by which landlord obtained nothing under its complaint and tenants obtained $500 on the cross-complaint, with landlord apparently believing that there was a costs waiver based on pre-offer settlement exchanges even though there was no costs waiver in the 998 offer.  Judgment was entered on the 998 offer, and tenants moved for Civil Code section 1717 fees under the fees provisions to the tune of a requested $31,797.50.  The lower court awarded $28,000, provoking landlord’s appeal.

            The majority, in an unpublished opinion authored by Justice Moor, affirmed.  With respect to landlord’s waiver of cost argument, this was rejected because the lack of costs/fees language in the 998 offer allowed tenants to bring a subsequent fee motion.  (Timed Out LLC v. 13359 Corp., 21 Cal.App.5^th 933,944 (2018).)  The pre-offer settlement exchange and subjective belief by landlords’ attorney were irrelevant.  Landlord’s argument that no fees were allowable because there was a voluntary dismissal was plain wrong, because a judgment had been entered in tenants’ favor such that they prevailed.  That brought the majority to landlord’s argument that only $500 could be awarded in fees, but the majority found that the other provision allowing additional fees superseded the cap and was applicable under section 1717 to tenants even though unilaterally worded in landlord’s favor.

            Acting Presiding Justice Baker, in dissent, saw things differently on the “cap” issue.  He believed that it was in play, because the additional fees provision had limiting language which invoked the cap—due to the language “Refer to Lease for limitations” in the second fees clause.  He would have modified the fee award downward from $28,000 to $500.  Here is his ending observation:  “I cannot justify disregarding a glaring error in interpreting the lease documents, one that results in a mistaken award of tens of thousands of dollars in attorney fees, by an overly strict Marquess of Queensbury-type application of appellate brief formatting rules or abstract theorizing about possible concessions made below. I therefore respectfully dissent.”

            BLOG PRACTICE POINTERS—Two practice pointers emerge based on the reasoning from both the majority and dissenting justices.  First, if you want to waive fees and costs, make sure that waiver is clearly set forth in the section 998 offer; do not rely on pre-offer negotiations.  Second, if you want to enforce a fee “cap” in a contract, make sure that the “cap” language is clear and unambiguous in nature, reiterated if there are other addendum provisions relating to fee recovery to avoid a result like the one in this decision.

            BLOG HISTORY UNDERVIEW—This brings us to discuss John Douglas, the 9^th Marquess of Queensberry, the person alluded to by Justice Baker in his dissent.  This Marquess of Queensberry, who was supposedly a beautiful sports boxer himself, helped implement a strict code of conduct/rules for the sport of box (including the use of gloves and rules such as not hitting below the belt).  But there is more.  This M/Q got into a real battle with noted Irish poet and playwright Oscar Wilde.  Based on an apparent homosexual relationship between Wilde and Q/M’s son Alfred, Q/M was angered by things and delivered a calling card “For Oscar Wilde, posing as Somdomite [sic]” at Wilde’s club.  Wilde sued for criminal libel, which led to Q/M’s arrest.  Wilde dropped his libel case because a defense to his claim was that Wilde had sex with other men (with Q/M indicating he intended to present such testimony in his defense).  Q/M then won substantial defense expenses against Wilde based on a counterclaim.  This left Wilde bankrupt, also resulting in his conviction for gross indecency and in two years of hard labor while Wilde was confined to jail.  Wilde then went into exile in France.  Q/M, at the age of 56, died on January 31, 1900.  Months later, Wilde died at the Hotel d’Alsace in Paris, at the age of 46.  Wilde’s last words right before his death were reputed to be something to the effect, “The wallpaper [in the hotel] is terrible—one of us will have to go!”

Fee Clause Interpretation, Section 1717: Fraud-Based Claim Upon Narrow Unilateral Fees Clause Was Not Broad Enough To Allow Fees To Prevailing Fraud Plaintiffs

However, Appellate Court Reversal Of Guaranty Rescission Denial Did Trigger Fee Recovery Under Broad Bilateral Fees Clause.

            If readers follow us over the years (or if you are new to us, welcome), the actual wording of a contractual attorney’s fees clause can be critical in terms of whether it allows fee entitlement.  The disparate language in fees clauses under a lease and guaranty actually led to different results in Orozco v. WPV San Jose, LLC, Case No. H044014 (6^th Dist. June 17, 2019) (published).

            Orozco involved a situation where a plaintiff lessee successfully sued for fraud in the negotiation of a lease because lessor’s agent failed to disclose that there was a lease with a competing-type of food tenant after indicating that there were no other prospects on board.  (NOTE TO TENANTS:  Ask landlord for an exclusivity clause in order to truly protect yourselves.)  However, that was not true, there was a competing lease in the pipeline.  Plaintiff tenant opened with good revenue fanfare, but that died after the competing tenant came aboard.  Plaintiff and an affiliate sued for fraud in the lease negotiation and rescission, with lost profits being awarded on the fraud claims but with rescission being denied (with the lease guarantor seeking rescission of the guaranty).  The lower court denied attorney’s fees to the suing tenant and guarantor.

            The Sixth District affirmed the denial of fees to plaintiffs based on its fraud victory.  The problem was that the predicate lease fees clause was narrow and unilateral to Landlord, limited to disputes “arising from the provisions of this Lease or any default hereunder.”   Even under Civil Code section 1717, the narrow language of the lease fees clause did not encompass a tort dispute which was not one grounded “on the contract.”  However, the appellate court reversed the lower court’s denial of rescission of the guaranty.  The guaranty lease clause was much different.  The guaranty included a provision entitling a prevailing party in “an action against the other arising out of or in connection with this Guaranty” the right to “recover from the other attorneys’ fees and costs, including collection costs incurred.” This expansive language, which applied to any prevailing party (unlike the unilateral language of the lease’s attorney’s fee provision) was sufficient to encompass Orozco’s fraud action and rescission remedy. (Lerner v. Ward, 13 Cal.App.4th 155, 159– 161 (1993) [clause allowing fees in any action or proceeding arising out of the agreement includes a fraud action arising out of the agreement].) So, the matter was remanded to allow the guarantor to obtain some fee recovery, out of a denied initial fee request of $700,000. 

Appeal Sanctions, Fee Clause Interpretation, Section 1717: Absence Of Appropriate Fees Clause Doomed Prevailing Defendants’ Request For $621,328.34 In Attorney’s Fees

However, Plaintiffs/Appellants And Their Appellate Counsel Sanctioned $44,654.64 For Frivolous Appeal.

            In J.B.B. Investment Partners Ltd. v. Fair, Case Nos. A152877/A153698 (1^st Dist., Div. 2 June 4, 2019) (unpublished), plaintiffs prevailed on a breach of contract count through a summary adjudication motion based on defendants’ breach of a settlement agreement and a lot of litigation activity to not pay under the settlement.  Plaintiffs earlier had SLAPPed defendants’ cross-complaint, and were awarded $12, 609 for that successful effort.  Defendants moved for fees of $621,328.34 under Civil Code section 1717, but the lower court denied the request, awarding $4,918 for additional fees relating to the SLAPP proceedings.  Plaintiffs appealed the merits determination, while defendants appealed the fee “denial.”

            Both appeals failed to garner any changes, except for a significant one:  plaintiffs and their counsel were sanctioned $44,654.64 for bringing a frivolous appeal—with the amount going to compensate defendants for responding to the appeal.  (We have seen a recent trend by appellate courts to sanction increasingly for frivolous appeals.)

            With respect to the fee denial, section 1717 does not create an independent right to fees, since one must look for fee entitlement through an actual contractual fees clause or an enabling statute.  Here, the settlement agreement had no fees clause, and the LLC operating agreement’s fees clause only applied to arbitration efforts rather than the litigation activities which were at issue in this one.  Fee denial affirmed. 

Fee Clause Interpretation: Fee Clause In PPM Did Not Cover Plaintiffs’ Negligence “Lost Investment” Lawsuit

Broader Language Might Have Led To A Different Result.

            Defendant won a negligent “lost investment” lawsuit brought by plaintiffs where there was a private placement memorandum (PPM) with an attorney’s fees clause.  The clause stated:  “If either party commences litigation for the judicial interpretation, enforcement, termination, cancellation, or rescission hereof, or for damages (including liquidated damages) for the breach hereof against the other party, then, in addition to any or all other relief awarded in such litigation, the substantially prevailing party therein shall be entitled to a judgment against the other for an amount equal to reasonable attorneys’ fees and other costs incurred.”   The lower court denied fees to the prevailing defendant, prompting an appeal.

            The fee denial was affirmed by the 4/3 DCA in Hammer v. Strategic Capital Holdings, LLC, Case Nos. G055369/G055430 (4^th Dist., Div. 3 May 31, 2019) (unpublished), authored by Justice Ikola.

            The reason supporting this result was simple:  the fee clause did not reach the negligence suit brought by plaintiffs.  Interpretation of the PPM was not at issue, just its adequacy.  Perhaps a clause more broadly worded to say it encompassed litigation “arising from or pertaining to the PPM” might have invoked fee exposure, but that is not how the clause read which was the subject of judicial review in this particular cause.

Fee Clause Interpretation: “Successor/Agent” Provision In Purchase Agreement Properly Led To Fee Award In Favor Of Prevailing Defendant Agent, Where Plaintiff Did Not Object To Instruction Stating Defendant Was An Agent

$143,775 Was The Fee Tally/$11,438 Was The Costs Tally, With The Appellate Court Chiding Losing Plaintiff For Disparaging Trial Judge And Engaging In “Apophasis.”

            In Mayhew Plaza Woodland Hills II, LLC v. Kelsey, Case No. G055668 et al. (4^th Dist., Div. 3 May 30, 2019) (unpublished), plaintiff purchaser sued defendant seller and defendant agent Kelsey for fraud in connection with the sale of a Hemet shopping center when plaintiff was facing a 1031 exchange deadline in order to avoid a tax hit.  The jury determined that the case was barred by the statute of limitations.  The trial judge awarded defendant Kelsey $143,775 in attorney’s fees and $11,438 in costs based on provisions in the written purchase agreement.

            The 4/3 DCA, in an opinion authored by Justice Bedsworth, affirmed the fee award.

            The purchase agreement had a fees clause as well as a clause indicating that the agreement applied to heirs, successors, agents/representatives, and assigns.  Plaintiff was judicially estopped to deny that defendant Kelsey was an agent, because it did not object to a jury instruction to the effect that Kelsey was an agent.  So, fee entitlement was established.

            However, plaintiff/appellant chose an unwise tactic to disparage the trial judge, but then engaged in “apophasis” by then implying that the trial judge’s personal relationship with several people directly or indirectly involved with the case led to the adverse result.  (In a footnote, “apophasis” was explained as a rhetorical device through which the speaker can deny a subject while bringing it up, with an example being “Far be it from me to suggest ….”).  The 4/3 DCA panel did not countenance the disparagement at all, observing it was a “shabby effort to deflect responsibility” by playing the personal relationships card and defendant was “passing the buck” in an ill-advised attempt to attribute a negative outcome to a judge who presided well over a complex case.

Fee Clause Interpretation, Section 998: Parking Lot Operator Entitled To Attorney’s Fees From Losing Lessee, But Whether Expert Witness Fees Allowed Had To Be Determined On Remand

Trial Court Erroneously Allowed Them Under CCP § 998, But Parking Lot Contract Clause Needed To Be Restudied On Remand To See If Operator Obtains Expert Witness Fees.

            In PCAM, LLC v. Bally Total Fitness of California, Inc., Case No, B277637/B285308 (2d Dist., Div. 8 May 28, 2019) (unpublished), parking lot owner, operator, and lessee got entangled in litigation over responsibility for personal injury settlements, with indemnification and fees clauses in the parking lot contract figuring into the mix.  Operator prevailed against lessee, with the lower court awarding $253,808.55 in fees and $49,925 in expert witness fees based on a rejected CCP § 998 offer.

            The 2/8 DCA affirmed the fee award, finding that the billings submitted were admissible and that the trial court did not abuse its discretion in not apportioning for work associated on different claims.  However, the expert fee award had to be reversed and remanded.  The lower court decided that pre-offer expert expenses were recoverable under section 998, but that was legal error—the statute specifies only post-offer expenses can be recouped.  Nonetheless, the parking lot contract had a clause allowing the prevailing party “to receive attorney fees, costs and expenses from the other party.”  The appellate court believed the fair thing to do was remand for purposes of determining if “expenses” included expert witness fees given that the lower court did not focus on this contract interpretation issue. 

Fee Clause Interpretation, Prevailing Party: Defendant Properly Denied Attorney’s Fees Where Plaintiff Really Obtained All Of Its Relief As The Prevailing Party Under Broad Fees Clause

Defendant Was Denied Fees, But It Did Not Independently Appeal—Maybe Should Have!

            In MBK Properties LLC v. San Diego Beer Co., Inc., Case No. G055856 (4^th Dist., Div. 3 May 28, 2019) (unpublished), seller/plaintiff sold a commercial parcel to buyer/defendant under a written purchase and sale agreement (PSA) which had a contractual fees clause allowing fees to a party “that receives a desired remedy …. substantially equal to the relief sought in an action” or “determined to be the prevailing party by a court of law.”  Seller prevailed based on an equitable subrogation rationale adopted by the lower court.  The lower court determined that seller was the prevailing party, but it denied fees because the trial judge did not believe seller prevailed “on the contract” under Civil Code section 1717—a determination not appealed by seller.  However, the trial judge also denied buyer’s fee request based on the theory that buyer prevailed.

            The 4/3 DCA, in a 3-0 opinion authored by Justice Goethals, affirmed the fee denial by appealing buyer.  The seller, not buyer, prevailed in this action because the fees clause was broad and extended to noncontractual claims such as equitable subrogation.  So, buyer was out of luck because it did not prevail within the meaning of the fees clause.

            BLOG OBSERVATION—Too bad that seller did not appeal the fee denial; might have gotten relief despite the lower court fee denial!

Fee Clause Interpretation: Fee Clause In Rental Agreement Enforced As To Additional Appellate Fees Assessed Against Losing Party

However, Losing Party’s Failure To Appeal Earlier Fee Award Led To The Equitable Resolution By The Appellate Court.

            Adams v. Easley, Case No. C081016 (3d Dist. May 23, 2019) (unpublished) is an interesting case where an in pro per tenant plaintiff was assessed with additional appellate fees of $7,548 in favor of landlord in connection with an earlier appeal.  Previously, plaintiff had been hit with $97,677.50 in fees at the trial court level, something that he apparently did not appeal and was final long ago.  However, plaintiff did appeal the additional fee award, obtaining some measure of relief.  There was an $800 fee “liability cap” in the rental agreement, which the appellate court honored.  Although it could not undo the prior $97,677.50 fee award, the Third District panel decided it could honor this cap by not assessing the additional appellate fees awarded later.

Fee Clause Interpretation, Section 1717: Post-Arbitration Fee Request Denied Because Contract For Which Entitlement Sought Was Never Submitted For Judicial Review

Myriads Of Other Bases For Fee Entitlement, First Introduced On Appeal, Rejected.

            If you are going to seek fee recovery, make sure you put forth all of your bases for fee entitlement at the trial court level. The fee claimant in Glass v. Veros Credit, LLC, Case No. G055257 (4^th Dist., Div. 3 April 30, 2019) (unpublished) learned this lesson the hard way.

           After winning an auto installment contract dispute in an arbitration and gaining a $170,294.50 fee recovery, the winning party sought post-arbitration fees of $17,204.50 for confirming the arbitration award. However, the winner only sought fees based on a contract, never providing it in lower court fee hearings. Both the trial and appellate courts rejected the fee request. Pure and simple, the failure to provide the contract was dispositive. Although winner had a lot of additional fee entitlement bases on appeal, the appellate court thought it unfair to resolve alternate theories never advanced below and to make the appellate court engage in “new” adjudications on appeal. Justice Goethals was the author of the 3-0 opinion.

Costs, Fee Clause Interpretation, Homeowner Associations, Section 1717: Trial Court Properly Denied Fee Recovery To Prevailing Defendants Under Davis-Stirling Act Or Civil Code Section 1717 And Properly Struck The Costs Memorandum

Action Was Based On Tort, Not CC&Rs; Fee Clause Did Not Reach Tort Claims Under Section 1717; And Defendants Failed To Apportion Costs As Between Themselves.

            In the fee area, you must have a solid fee entitlement basis and you usually have to apportion costs where there are several prevailing defendants rather than claim total costs without an appropriate allocation. Schuchmacher v. McDermott, Case No. B288130 (2d Dist., Div. 3 March 28, 2019) (unpublished) is a case where prevailing defendants obtained no fees and costs because they could not establish fee entitlement and did not apportion routine costs.

            Plaintiffs suffered an adverse summary judgment against an HOA’s general manager and its current directors (who were not directors when the main plaintiff owned the condo unit) in a tort action involving insurance fire proceeds. Prevailing defendants moved to recover attorney’s fees of $361,586 and filed to recover $ 27,290 in routine costs. The trial judge denied the fee motion and struck the costs memorandum.

            The 2/3 DCA affirmed. The problem for defendants was that the tort claims were not efforts to enforce governing HOA documents, so entitlement under Davis-Stirling Act’s Civil Code section 5975(c) was lacking. Civil Code section 1717 was of no help either, because the CC&R fee clauses were narrow and did not apply to the tort claims against a general manager or the current directors. With respect to striking the costs, that was no abuse of discretion because defendants claimed all litigation costs, without apportioning between plaintiffs as well as defendants.

Fee Clause Interpretation: Operating Agreement Fees Clause Only Applied To Arbitration Proceedings, Not Court Work

$207,350 Fee Recovery Went POOF! On Appeal.

            In Pasco v. MGK Consulting, Case No. B281144 et al. (2d Dist., Div. 2 March 27, 2019) (unpublished), defendants won a motion for judgment at the close of plaintiffs’ case based on lack of standing for two claims and eventually obtained judgment in their favor as to plaintiffs’ remaining claims. The trial judge awarded fees under Civil Code section 1717 to defendants based on an operating agreement fees clause. The total award was $207,350.

            That all went POOF! on appeal. The reason was simple: the fees clause only encompassed arbitration proceedings, not court litigation. Given that the defense prevailed in court (not arbitration), no fee recovery was contractually allowable.

Fee Clause Interpretation, Section 1717: $40,642 Contractual Fee Recovery Affirmed On Appeal

Storage Facilities Had A Clear Fee Entitlement Provision, With Another Provision Not Capping Them At All—With Reasonable Fees Being The Only Limitation.

            In Enjati v. Big Bear Moving, Inc., Case No. E068332 (4^th Dist., Div. 2 Mar. 13, 2019) (unpublished), defendants were awarded contractual attorney’s fees after prevailing at trial on a storage facility dispute. Defendants sought $47,292 in fees, but they were awarded $40,642 instead. Losing plaintiff appealed, to no avail. Plaintiff could not beat the fact that there was a fee entitlement contractual provision, which was not capped by another provision which only put a “reasonable fee” limitation generally applicable under Civil Code section 1717 anyway on fee recovery. Fee award affirmed.

Fee Clause Interpretation, Settlement: No Abuse of Discretion And No Error By Trial Court In Finding The Parties’ Settlement Agreement Valid And In Awarding Attorney Fees Of $83,340.22 To Defendants For Enforcement Of Settlement Agreement

Plaintiff Hit With Attorney Fees Provision In Valid Settlement Agreement After Unsuccessfully Attempting To Back Out

        In Martello v. Buck, Case No. B285001 (2d Dist., Div. 1 March 1, 2019) (unpublished), Plaintiff Doctor sued Defendants Patient husband and his wife for defamation, assault, and intentional infliction of emotional distress after Defendants expressed dissatisfaction with Plaintiff’s billing practices on the internet. Defendants filed a cross-complaint for malicious prosecution, claiming Plaintiff had pursued litigation to collect on medical “balance billing” that Plaintiff knew to be illegal as they alleged she had been ordered by the Dept. of Managed Health Care to cease and desist from balance billing her patients. Balance billing is the practice of charging patients for the amount of the bill not covered after the insurance company pays its obligation, and patient has paid his/her deductible, copays, etc. It is illegal in California.

        In the underlying case, Plaintiff Doctor had obtained a default judgment against Defendants for the unpaid balance of the medical bill, and had attempted to collect by forcing a sale of Defendants’ home. Defendants were able to obtain relief from the default judgment and avoid sale of their home.

        The parties settled their claims against each other after months of negotiations. However, Plaintiff changed later changed her mind and refused to enter the settlement agreement in court. Afterward, following a bifurcated trial, the trial court found the settlement agreement to be a valid contract and dismissed the case pursuant to the agreement. The trial court also awarded Defendants $83,340.22 in attorney fees, pursuant to the terms of the settlement agreement, for their efforts in enforcing the agreement. Plaintiff appealed.

        In considering Plaintiff’s arguments on appeal, the 2/1 DCA concluded that the trial court had properly held a trial to determine if a valid settlement agreement existed between the parties, and had not abused its discretion by admitting the parties’ confidential settlement communications into evidence to determine whether a binding agreement existed. The 2/1 DCA then turned to Plaintiff’s argument that the trial court erred in awarding attorney fees to Defendants because the settlement agreement provided attorney fees for the enforcement of the agreement – not to establish whether there was a settlement agreement. It found the purpose of determining whether the settlement agreement was valid was to determine whether it could be enforced against Plaintiff, and that the immediate consequence of the trial was enforcement of the agreement and dismissal of the case – therefore no error. The trial court had properly awarded attorney fees to Defendants for enforcement of the settlement agreement.

Fee Clause Interpretation: “Arising Out Of This Transaction” Language In Attorney-Client Engagement Letter Is Broad Enough To Allow Fee Recovery For Legal Malpractice And Contract Win By Former Law Firm Against Suing Former Client

Failure To Specify To Whom Fees Were Paid Was Not Fatal Either.

            In Juarez v. Law Firm of Higbee & Associates, Case No. G054016 (4^th Dist., Div. 3 Feb. 28, 2019) (unpublished), former law firm won a summary judgment against a former client who sued for legal malpractice and breach of the engagement contract after law firm represented client in a marital dissolution action. Law firm then moved for fees based upon a provision in the engagement agreement, which read as follows: ““VENUE & COSTS. Disputes arising out of this transaction shall be adjudicated in Orange County Superior Court in the State of California. Losing party to pay attorney’s fees and court costs.” The lower court awarded law firm $32,645.50 in fees, prompting an appeal by the former client.

            The Fourth District, Division 3 affirmed in an opinion authored by Justice Fybel.

            Client argued that the failure to define “transaction” meant that the fee clause did not apply and that the failure to specify to whom fees paid made the clause hopelessly ambiguous. Because contracts are to be construed as a whole and in order to not render language surplusage in nature, the 4/3 DCA determined that it was contextually clear that the losing party would pay fees to the prevailing party and that “transaction” encompassed the contractually agreed-upon services rendered under the engagement letter when wording throughout was considered.

Fee Clause Interpretation, Mediation: $331,385 Contractual Fee Award Affirmed Because Absence Of Parol Evidence Did Not Show Fees Clause In One Contract Had A Mediation Condition Precedent

Absence Of Parol Evidence/Reporter’s Transcript Sealed The Result.

            If you are going to argue that a fees clause in one contract also governs another contract between different parties, you better introduce parol evidence to prove it. The loser in a fee battle did not do that in Morales v. Thee Aguila, Inc., Case No. G055224 (4^th Dist., Div. 3 Jan. 25, 2019) (unpublished), much less provide a reporter’s transcript, translating to a loss on appeal.

            Appellant lost an attorney’s fees battle to the extent of a $331,385 exposure based on a two-page handwritten contract with a fees clause. However, appellant claimed that a different contract involving different parties had a mediation condition precedent to fee recovery which was not followed so as to overturn the fees award at issue. The problem here was essentially one of proof: appellant introduced no parol evidence and did not provide a reporter’s transcript of what was offered into evidence below. Given the lack of parol evidence, the objective rule of contractual interpretation applied. There was a provision saying that prior agreements were incorporated into the contract as between the parties; however, given that the fees clause in the second contract involved different parties, there could be no carry-over of the mediation requirement from the second contract. Fee award affirmed.

            Justice Goethals authored the 3-0 decision for the 4/3 DCA.

Fee Clause Interpretation, Section 1717: Defendant Prevailing In Easement Dispute Was Entitled To Contractual Fee Award

Easement Agreement Fees Clause Was Broad Enough To Allow For Fee Entitlement.

            In Stark v. Ortiz, Case No. A153680 (1^st Dist., Div. 5 Jan. 24, 2019) (unpublished), defendant won contractual fees in a neighboring landowner easement dispute against a plaintiff. The parties had an Easement Agreement with a fees clause encompassing “any legal action or proceeding arising out of or relating to” the Easement Agreement. The trial court found in favor of defendant on plaintiff’s complaint after defendant dismissed a cross-complaint. The lower court awarded all fees to defendant except for ones relating to the dismissed cross-complaint.

            Plaintiff’s appeal of the fee award was not successful. The fees clause was broad enough to encompass both the declaratory relief claim (for sure) and the intertwined tort claims brought by plaintiff, all of which involved the scope of the Easement Agreement.

Fee Clause Interpretation, Prevailing Party: $53,791.79 Fees/Costs Award To Tenant And Against Landlord Affirmed On Appeal

Fee Clause “Any Right” Language Allowed Tenant To Recover For Landlord’s Misrepresentations.

            Zhang v. Cheung, Case No. B282132 (2d Dist., Div. 7 Jan. 16, 2019) (unpublished) involved a situation where a landlord won only $16,200 in damages for breach of a lease, while tenant won $30,078.85 in damages from landlord for intentional misrepresentation and negligence. The lease had a fees clause providing recovery to prevailing litigant in situations “to enforce any provision of this lease or any right of either party hereto ….” The lower court awarded fees and costs of $53,791.79 to tenant as the prevailing party in the litigation. (The trial judge, while the matter was on appeal, vacated the fee award and then later reinstated it, with the appellate court only looking to the initial fee award given that the vacation order was void once the appeal was filed.)

            The 2/7 DCA upheld the fees/costs award. The “any right of either party” language was broad enough to encompass tenant’s victory on the misrepresentation/negligence claims. Because the jury awarded more to tenant than landlord, tenant was the successful party. Landlord then asked the appellate court to limit his liability to his equity in the property based on a lease limitations provision, but that only applied to any lease claims rather than the tort claims under which tenant was victorious.

Fee Clause Interpretation, Family Law: Husband’s Fees In Defeating Wife’s Orange County Action, Although Stipulated Judgment Entered In Los Angeles Family Law Court, Was Allowable Under Wording Of Stipulated Judgment Fees Clause

“Court Intervention” Language Not Limited To Just One Court, 2/1 DCA Concludes.

            In Pont v. Pont, Case No. B284064 (2d Dist., Div. 1 Dec. 20, 2018) (unpublished), ex-husband was awarded $90,000 in attorney’s fees and costs for defeating ex-wife’s claim that he siphoned off community assets in an Orange County action, after the parties had entered into a stipulated judgment with a fees clause in Los Angeles County family law court. The fees clause covered a prevailing party involved in a “court intervention . . . in connection [with the stipulated judgment].” Both the trial and appellate court had no difficulty concluding that husband’s Orange County victory qualified him as the prevailing party, not just limited to the Los Angeles County family law court producing the entry of the stipulated judgment. Husband obtained a dismissal at the demurrer stage, so that this certainly was a prevailing “win.” Finally, hourly rates ranging from $120-800 per hour for his attorneys was sustained as reasonable given this was a family law matter (although the lower court did note that the $800 mark was at the high range of fees for this type of matter).

Fee Clause Interpretation: Broad Settlement Agreement Fees Clause Allowed For Recovery Of Fees In Fraudulent Stripping Of Assets Case

$188,000, After About $86,000 Reduction, Was The Sustained Fee Award.

            In Langer’s Delicatessen, Inc. v. Sino Enterprises, Inc., Case No. B287333 (2d Dist., Div. 4 Nov. 28, 2018) (unpublished), plaintiff won an action for fraudulent stripping of assets by a defendant based on a prior judgment and a settlement agreement. The settlement agreement had a broadly worded fees clause such that the trial judge awarded $188,000, about $86,000 less than the requested amount. The fees clause was broadly worded such that it allowed for fee recovery, with the court not having to address the fact fee authorization is not discussed under California’s voidable transfer statute.

Fee Clause Interpretation, Reasonableness Of Fees: Appellant’s Failure To Discuss Fee Clause Entitlement Under Note Fees Clause And Failure To Provide Reporter’s Transcript (RT) Of Fee Hearing Doomed Merits Of Her Appeal

Absence Of RT Can Be Fatal Indeed, Meaning Inadequate Record On Appeal.

            Appellants need to address legal fee entitlement bases and provide a reporter’s transcript of a fee hearing when challenges are made to either the merits or the amount of fees awarded. We have posted many times about how appellate courts will rebuff fee award challenges where no reporter’s transcript is provided, something that the Second District, Division 5 is especially prone to do unless only legal issues are involved in the fee challenge. Vyas v. Berman, Case No. A149220 (1^st Dist., Div. 2 Sept. 27, 2018) (unpublished) follows that trend.

            Appellant argued that the post-judgment award of $46,820 in fees was in error. However, with respect to fee entitlement, she could not demonstrate any infirmity given the failure to discuss a promissory note fees provision which facially did allow for fee recovery to the prevailing party (appellant’s opponent below). On the claim that the amount of fees was excessive and unreasonable, appellant’s failure to provide a reporter’s transcript doomed the appeal based on the failure to present an adequate record for purposes of assessing this challenge. (Vo v. Las Virgenes Municipal Water Dist., 79 Cal.App.4^th 440, 447 (2000).)

Fee Clause Interpretation: $178,255 Fee Award Against Guarantor Reversed As A Matter Of Law

Reason Was That Guarantor Guaranteed Orally, Not Assuming The Fee Clause Liability Under The Guaranteed Note With A Written Fees Clause.

            In Khodagulyan v. Aminpour, Case No. B270330 (2d Dist., Div. 3 Sept. 6, 2018) (unpublished), a cross-complainant was found to be a prevailing party because he had incurred attorney’s fees to collect on a note as against cross-defendants found to have orally guaranteed the note. The lower court awarded cross-complainant $178,255 in fees, jointly and severally against the cross-defendants, based on the fees provision in the note.

            All of that fee recovery went POOF! on appeal.

            The reason for this reversal was that appealing parties only orally guaranteed the note payment amount, with nothing indicating that they agreed to pay the amount due under the note according to the terms of the note. Simply agreeing to orally guarantee payment did not mean the guarantors agreed also to pay other obligations under the note, including responsibility under the fees clause.

Deed Of Trust, Fee Clause Interpretation: Deed Of Trust Fees Clause Did Not Justify Recovery To Successful Litigant Really Suing For Real Estate Option To Purchase Agreement Lacking A Fees Clause

Deed Of Trust Fees Clause Was Not Broad Enough To Encompass Real Estate Option Dispute.

            We have somewhat, on a syllogistic basis, indicated how one can achieve success on a fee petition in past posts—and we may give more clues to follow in future posts.

However, the first element is FEE ENTITLEMENT. You need a statutory or contractual basis for fee recovery. On a contractual basis, this means a laser focus on the terms of the fees clause to determine if it captures the disputes on which a judgment or resolution was reached. The next case shows how a successful result under one agreement, without a fees clause, and under another agreement, with a fees clause, may not entitle one to fees depending on what agreement really governed the dispute. If the dispute was governed under an agreement without a fees clause, you are out of luck!

In New Life Oasis Church v. Central Korean Evangelical Church, Case No. B284456 (2d Dist., Div. 4 Aug. 20, 2018) (unpublished), there was a longstanding dispute between parties as to the ownership of a Koreatown church property in Los Angeles. Plaintiff ultimately won a judgment to enforce a lease option to buy defendants’ church property, although nothing in the lease option document had an attorney’s fees provision. However, plaintiff was given a trust deed to secure an option security deposit on the Koreatown property, which did not contain an attorney’s provision indicating that the trust deed trustor would “ . . . appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary [Plaintiff] or Trustee; and to pay all costs and expenses, including costs of evidence of title and attorney’s fees in a reasonable sum, in any action or proceeding in which Beneficiary or Trustee may appear, and in any suit brought by Beneficiary to foreclose this Deed.” The trial judge found that this provision allowed the plaintiff to recover attorney’s fees of $285,025 against the defendants as the prevailing party.

The fee award was reversed as a matter of law by the appellate court upon review.

Nothing demonstrated that the two agreements were linked or incorporated by reference so as to justify a fee award based on a deed of trust fees clause which was divorced from plaintiff’s option agreement win. In fact, the reviewing court did place emphasis on punctuation marks in the written clause which influenced its decision.   (Dow v. Lassen Irrigation Co., 216 Cal.App.4^th 766, 783 (2013).) All of the punctuation and context of the trust deed provision showed it applied to narrow trust deed enforcement, not broader lease option concerns. Given the narrower scope of the DOT clause, fee recovery was not proper.

Fee Clause Interpretation: 4/3 DCA Reverses $9,000 Fee Recovery Against Estate’s Personal Representative/General Partner Who Was Not A Party To The Agreement With Fees Clause

Fee Clause Was Also Broad In Scope, But Nonsignatory Individuals Were Not Party To The Underlying Agreement.

            In Mayhew Plaza Woodland Hills II, LLC v. Kelsey, Case No. G054435 (4^th Dist., Div. 3 Aug. 6, 2018) (unpublished), plaintiff dismissed an individual defendant in his capacity as representative of an estate in an action alleging only tort claims, with the individual defendant later awarded $9,000 in attorney’s fees under a broad fees clause in a purchase agreement. The fees clause broadly stated: “In any litigation, arbitration, or other legal proceeding which may arise between any of the parties hereto, including Agent, the prevailing party shall be entitled to recover its costs, including costs of arbitration, and reasonable attorneys’ fees in addition to any other relief to which such party may be entitled.”

            The 4/3 DCA, in an opinion authored by Justice Bedsworth, reversed. The problem was that “Agent” was specifically defined to be a broker in the transaction. Another flaw was that none of the individuals named in the action were “parties,” as distinct from the signatories (such as a limited partnership). The general partner was not liable for fees simply because he signed a contract on behalf of a limited partnership. “Nothing in this agreement indicates that the parties intended an already wide-ranging fee provision would apply to anyone who happened to get swept up in litigation between the contracting parties.” (Slip Op., p. 9.) Similarly absent was any showing that the agreement was intended to benefit the general partner individual defendant. (Whiteside v. Tenet Healthcare Corp., 101 Cal.App.4^th 693, 709 (2002).)

Fee Clause Interpretation: Tenant/Assignee Under Lease Properly Awarded Partial Litigation Fees For Winning Contractual And Related Fraud Cross-Claims, But Properly Denied Fees Expended In Prevailing On Common Law Ejectment Cross-Claim

Lease Agreement At Issue Because Lease Term Had Expired; And, In Any Event, Ejectment Was Tort Claim Not Encompassed Within Narrower Fees Clause.

            Compton Commercial Development Renaissance Plaza v. Taco Bell Corp., Case No. B283393 (2d Dist., Div. 4 Aug. 1, 2018) (unpublished) was a case where landlord sued former tenant/assignee Taco Bell for breach of contract, fraud, and common law ejectment under a cross-complaint after Taco Bell assigned the lease to another (allegedly not doing so properly). The lease agreement had a narrow attorney’s fees clause, as relevant to the dispute at issue, applying to suits “to enforce” lease provisions or “for a declaration of rights hereunder.” Taco Bell obtained a demurrer on contract and fraud claims, for which fees were awarded to the tune of $47,700. However, the trial judge refused to award other fees incurred in obtaining summary judgment of the ejectment cross-claim. Taco Bell appealed the refusal to award fees on the ejectment cross-claim work.

            The landlord had the better side of this argument.

            The fees clause in the lease had narrow language, unlike more encompassing “arising out of” or “with respect to subject matter” language, which did not apply to tort claims. The ejectment claim did not qualify for fee recovery for two reasons: (1) the lease agreement was not in dispute because Taco Bell was not in possession (the lease term had undisputedly expired already) and it disclaimed any residual interest under the lease; and (2) the ejectment cross-claim sounded in tort, such that it was not within the ambit of the fees clause.

Fee Clause Interpretation: Joint Tenant Liable For $237,080 In Attorney’s Fees Where Another Joint Tenant Obtained $210,750 In Compensatory Dmgs. To Lease Premises Where Both Parties Signed Lease, And Contribution Rights Were Involved to Landlord

Narrow Lease Clause Applying Broadly To “Any Party” Encompassed Fee Exposure With Respect To Actions Between Joint Tenants.

           Sometimes small words make a difference in the interpretation of the scope of an attorney’s fees provision. In this instance, the words “any party” opened the door to fee exposure in a controversy between joint tenants with respect to a fire causing damages to the leased premises and damaging both of the tenants’ businesses operated from jointly leased premises.

            Shehadeh v. Altoh, Case No. C082993 (3d Dist. July 27, 2018) (unpublished) involved joint tenant lease with a broadly-worded fees clause which said “[i]f any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party . . . in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees.” (This is the fees clause in the AIR Commercial Real Estate Association Standard Industrial/Commercial Single-Tenant Lease at the time, which was in 2008.) Of importance, two tenants—plaintiff and defendant in the litigation to follow—signed as tenants in a lease with a landlord, eventually dividing the space so that plaintiff operated an auto sales business on one part of the property while defendant operated an auto repair business on another part. A fire occurred, disrupting the sales business and destroying the repair business. Plaintiff joint tenant (sale business owner) sued defendant joint tenant (repair business owner) for negligence and premises liability, claiming the fire originated from the auto repair business. The trial court, after a bench trial, agreed and awarded plaintiff damages in the amount of $210,750. Prevailing plaintiff filed a motion for attorney’s fees based on the lease provision, requesting $253,780 in fees. The trial court awarded plaintiff $237,080 in fees, prompting an appeal by defendant claiming that the fees provision does not apply to disputes between joint tenants.

            The Third District affirmed the fee award. A big reason for the affirmance was the “any Party” language in the lease provision among joint tenants, especially given that the lease specifically delineated that a “Party” meant an individual Party in definitional language and given that the authority/multiple parties/execution provision supported a singular party as being a “Party” within the meaning of the lease. Joint tenants were obviously jointly and severally liable to the landlord, such that there were contribution rights for damages and joint tenants have duties amongst themselves under the lease, so the dispute was encompassed (not to mention the broad tort language in the fees clause). Although there was a separate sublease between the joint tenants with a narrower fees clause, nothing in the sublease indicated it displaced the lease joint tenancy provisions.

Fee Clause Interpretation: Plaintiff Recovering $1.3M Jury Verdict On Premises Liability Claim Against State Of Cal. Not Entitled To $1.2M In Requested Fees Based On Lease Clause As Claim Did Not Arise “Out Of The Execution Of The [Rental] Agreement"

Plaintiff Never Mentioned Lease Or Fee Recovery In The Premises Liability Suit Until After The Jury Win, With Appellate Court Agreeing With Trial Court’s Construction Of The Fees Clause.

            We get the feeling that the 1/2 DCA in Wright v. State of California, Case No. A150165 (1^st Dist., Div. 2 July 27, 2018) (unpublished) believed plaintiff somewhat was “pulling a fast one” by not even mentioning that the dispute over which he won a $1.3 million jury verdict really involved a lease with an attorney’s fees clause. As a result, it completely found the trial judge was “spot on” in concluding that the fees clause did not apply and denying an almost $1.2 million fee post-verdict fee request.

            The problem here was that plaintiff was suing for a premises liability stair trip outside of the premises he was renting from the State of California. He did not mention the lease in the complaint or prayer for recovery of fees. The trial judge decided that the fees clause was narrow, applying only to a dispute which had to “arise out of the execution of this agreement,” and characterizing the suit for one just like any public member would bring on a premises liability basis rather than a tenant suing under the lease. (Made all the more so because the lease defined the “premises” circumspectly as the house plaintiff was renting from the State.) Plaintiff tried to rely on a “common area” theory which was successful in Hemphill v. Wright Family, LLC, 234 Cal.App.4^th 911 (2015), but the lower court correctly found it distinguishable because the jury in the case at issue did not necessarily decide on that issue because the evidence was controverted. The indemnification clause in the lease did not confer fee entitlement because plaintiff’s motion did not rely on this clause and the indemnification clause did not speak to fees or expert costs at all.

            Here is the bottom line from the appellate panel in affirming the denial of fees: “Wright should not be permitted to bring a statutory tort claim, omit any mention of attorney fees or otherwise bring into play the lease agreement, and thus not risk being saddled with the State’s attorney fees if he lost at trial; and then, having won, subsequently contend that his claim was based on the lease.” (Slip Op., p. 15.)

Fee Clause Interpretation, Section 1717, Section 998: Overall Prevailing Party Not Entitled To Atty’s Fees On Contractual Claim Dismissed During Closing Argument, On Noncontractual Claims Under Narrow Fees Clause, Nor § 998 As Gen. Litigation Expenses

Result Was Affirmance Of $38,000 Fees Award On One Of Three Cases, But Affirming The Denial Of The Remaining $165,000 Total Request Based On Topical Analysis Above.

            Contreras v. Silla America, Inc., Case No. B283118 (2d Dist., Div. 3 July 17, 2018) (unpublished) involved a situation where a trial judge decided that an overall prevailing party was entitled to apportioned attorney’s fees of $38,000 in one of three cases, although denying the total fee request on all three cases coming to a total of about $165,000. Prevailing party—as appellant – wanted more, appealing, but he did not gain his wish.

            With respect to one case where he was a defendant, the appellant could not gain fees because the plaintiff dismissed the case during closing argument. Appellant was not happy, but the dismissal was proper because it was done before submission of the matter for decision so as to preclude fee recovery. In this respect, Division 3 agreed with the analysis of the Second District, Division 4 in Shapira v. Lifetech Resources, LLC, 22 Cal.App.5^th 429, 437 (2018) on the issue [reviewed in our April 20, 2018 post].

            However, not to give up on the Santisas point in the case where fees were denied, appellant argued that the causes of action were noncontractual in nature so as to fall outside of the contractual dismissal ban. No, that did not work. The fees provision only focused on collection actions following the buyer’s failure to pay for purchased goods, not containing any broad language to support an award of fees as it related to noncontractual claims.

            Finally, that brought everyone to the CCP § 998 argument that the rejected settlement offer allowed the offeror, like appellant, to recovery litigation expenses such as attorney’s fees. The Court of Appeal, eloquently, answered this way:   nice try. Section 998 does not provide for recovery of attorney’s fees as costs, unlike potential recovery of expert witness fees. “We are unaware of any case holding that Code of Civil Procedure section 998 authorizes a discretionary award of attorney’s fees as costs in the absence of some other statutory or contractual right to such fees.” (Slip Op., p. 14.)

Deeds Of Trust/Fee Clause Interpretation: Deed Of Trust Fees Clause Was Broadly Worded So As To Entitle Lender To Attorney’s Fees Award Against Borrower

$45,263.33 Was The Award After A Dismissal Based On Plaintiff Not Appearing At Trial.

            In Kleidman v. RFF Family Partnership, L.P., Case No. B268541 (2d Dist., Div. 4 July 10, 2018) (unpublished), plaintiff failed to appear at a scheduled trial such that his case against a lender was dismissed, a determination affirmed on appeal. The trial judge subsequently awarded lender $45,263.33 in attorney’s fees based on a fees clause in the deed of trust. Plaintiff challenged that determination, but the appellate court rejected it. In this case, the fees clause was broad, including “any action or actions … which may be brought … for the enforcement of any covenant or right in the Deed of Trust or any other Loan Document ….” Given that Civil Code section 1717 made it reciprocal in nature, the unilaterally-worded clause in favor of lender did not render it infirm.

            BLOG OBSERVATION—The result here contrasts with the opposite conclusion reached in some cases, where deed of trust fees clause confined the remedy to adding the fees to the loan balance and then requiring a foreclosure. You can find cases supporting fee denials on this basis in our home page category “Deeds of Trust.”

Fee Clause Interpretation: Telephone Leasing Defendant Not Entitled To Fees Against Plaintiff Successor Owners In Declaratory Relief Action Where Fee Clause Only Applied In Lease Between Defendant And Phone Provider

However, Defense Attorney’s Recordation Of Judgment Abstract Based On Including Fees As Costs Before Fee Motion Was Heard Troubled The Court Of Appeal, Which Ordered The Lien Removed.

            In Labertew v. Whiteley, Case No. C077751 (3d Dist. July 10, 2018) (unpublished), plaintiffs, successors to the original owner on land where there was telephone equipment leased to a phone provider, sued defendant original owner for declaratory relief, claiming that they were entitled to the lease cash flow under the phone equipment lease entered into by defendant and the phone provider. The lease had a fees clause between defendant and the phone provider. Defendant prevailed in plaintiff’s declaratory relief action. Defendant then sought fees from plaintiffs and her attorney filed an amended abstract of judgment against plaintiffs’ property for the amount of a costs judgment (but which included the amount of requested attorney’s fees as costs before the fee matter was adjudicated). The trial judge refused to award fees and ordered the abstract to be removed.

            The Third District affirmed. It decided the lease fees clause only related to defendant and the phone provider, not extending to any dispute for declaratory relief between defendant and a successor in interest to the property defendant formerly owned. It was even more troubled by the recordation of a judgment abstract for a yet-to-be adjudicated fee motion as part of the abstract, agreeing it was properly lifted and referring the matter to the State Bar for defense attorney’s “troubling” conduct.

Deeds Of Trust/Fee Clause Interpretation: Broadly Worded Trust Deed Fees Clause Allowed For Fee Recovery By Lienholder Under Second Loan Based On Both Contract And Tort Theories

“To Protect Lien” Under Deed Of Trust Fees Clause Was Viewed As Broad In Ambit.

            In Arefi v. JP Morgan Chase Bank, Case No. B263947 (2d Dist., Div. 7 July 2, 2018) (unpublished), a borrower brought various causes of action to set aside/cancel a trustee’s sale, to quiet title, and to obtain recovery under various statutory claims arising from an assigned lienholder’s nonjudicial foreclosure of a second loan. All of the claims were resolved against borrower, with the trial court subsequently granting attorney’s fees to lienholder under a broadly worded deed of trust fees clause allowing lender to recover fees “to protect its lien” under the second loan deed of trust.

            Borrower’s appeal on the merits and on the fees award did not succeed.

            Because the borrower’s causes of action were ones challenging the lien, the lienholder did vindicate a win to “protect its lien” under the deed of trust fees clause. Also, the broad fees clause covered both contract and tort claims such that it did not matter if some were other than “on the contract” under Civil Code section 1717.

Fee Clause Interpretation: Fee Recovery To Litigant Prevailing On Cross-Complaint With Mixed Tort/Contract Claims Properly Denied Because Fees Clause Only Related To More Narrow “Account” Issues

Litigant Failed To Show Fee Entitlement.

            Assuming that a fee motion is timely filed, the next big obstacle for a fee claimant is demonstrating – drum roll time! – fee entitlement. That obstacle was not cleared by appellant in Schneider v. Deam, Case No. A150027 (1^st Dist., Div. 2 May 29, 2018) (unpublished).

            There, appellant filed a limited action to recover $1,613 in unpaid fees, with the two retainer agreements having narrow fees clauses which stated: “In the event of legal proceedings as to any account, the prevailing party is entitled to attorneys’ fees.” Defendant ex-client filed an unlimited jurisdiction cross--complaint sounding in tort/contract and praying for damages in excess of $815,000. After the dismissal of the cross-complaint, plaintiff moved to recover $42,265.85 in legal fees under Civil Code section 1717 and the contractual fee agreement. The trial court said “no.”

            The appellate court agreed with the trial judge’s “no” assessment.

            There was an initial jurisdictional jumble to address. Plaintiff’s complaint had not been disposed of, but that “snag” did not matter because any judgment in the limited civil action would go through the superior court appellate division instead. The cross-complaint judgment was indeed final and appealable.

            On the merits, plaintiff failed to demonstrate how the narrow fees clause applied to the cross-complaint tort and contractual cross-claims. Simply skipping ahead to the Civil Code section 1717 “prevailing party” analysis did not remedy the failure to show a fees clause with a fee entitlement basis in the first instance.

Fee Clause Interpretation, Interpleader, Section 1717: Bank Winning Fee Award For Prosecuting Interpleader Cross-Complaint And Successfully Defending Against Plaintiff’s Complaint Reversed And Remanded

Appellate Court Offered Guidance, Including That No Section 1717 Adverse Fee Award On Plaintiff’s Complaint Could Be Granted On Grounds Advanced By Lender.

            Plaintiff octogenarian sued her lender on various theories stemming from lender’s failure to disburse timely insurance proceeds covering a fire loss.  In response to plaintiff’s Complaint, Lender filed an interpleader cross-complaint.  The trial judge sustained a demurrer to plaintiff’s complaint and discharged lender through the interpleader, later ordering $68,265 in attorney’s fees (the full request) to lender for prosecuting the interpleader and successfully defending against plaintiff’s complaint and ordered fees payable from the interplead insurance proceeds.

            Because the demurrer to plaintiff’s complaint should have been overruled, the fee award also was reversed, with remand guidance, in Rodriguez v. Banco Popular North America, Case No. B280489 (2d Dist., Div. 5 May 4, 2018) (unpublished). 

            The appellate court acknowledged that Lender, if eventually successful in the interpleader, is entitled to statutory fees (Code Civ. Proc., § 386.6(a)), but that it could locate no authority indicating that the section 1717 fees relating to plaintiff’s complaint could be paid out of interplead funds.  Beyond that, however, guidance was offered on remand.  In particular, Lender’s reliance on a deed of trust provision only allowed it to add attorney’s fees to the borrower’s loan, not seek an independent award of fees in a court action.  With respect to the note provision relied on by Lender, plaintiff did not sue under the note but relied on her contractual rights to disbursement of insurance proceeds, such that this ground could not be advanced as a basis for fee entitlement under section 1717. 

Allocation/Fee Clause Interpretation: $66,103 Fee Award Against Losing Plaintiff/Cross-Defendant Affirmed Based On Broad Fees Clause And Common Intersection of Complaint And Cross-Complaint Claims

Underlying Dispute Related To A Grading Of Dr. J’s 1972 Trading Card.

            This next case illustrates an interesting application of attorney’s fees principles we have seen in many cases to a dispute over grading of a Dr. J trading card.  Let’s get to it.

            In Knafo v. Collectors Universe, Inc., Case No. G055112 (4^th Dist., Div. 3 Apr. 30, 2018) (unpublished), plaintiff submitted a 1972 Julius Erving (Dr. J) trading card to defendant for grading in line with the terms of a written submission agreement, also referencing a guarantee by defendant.  The submission agreement contained a broad fees clause encompassing “any action to enforce the terms and condition of [the agreement] or otherwise arising under or with respect to [it].”  After defendant asked plaintiff to return the card based on an incorrect “Gem Mint 10” rating, plaintiff refused to return it, provoking a complaint by plaintiff to seek the full value of the incorrect grading and defendant filed a cross-complaint seeking to obtain a return of the card for the correct rating.  Defendant won on both counts, with the judgment requiring a return of the Dr. J card for correction of the Gem Mint 10 grading.  Then, defendant moved for fees under the broad contractual clause, with the trial judge granting $66,103 in fees.

            Plaintiff lost appeals of the merits judgment and the subsequent fee award.

         The problem here was that the defense pled the submission agreement, which encompassed the guarantee, as an affirmative defense to the complaint such that fees for both defending against the complaint and prosecuting the cross-complaint were covered and were interrelated in nature. 

            BLOG WELCOME—We note that this case was decided by Justice Goethals, who was recently appointed to the 4/3 DCA and is among some of first decisions on the appellate bench. 

Assignment, Deed Of Trust, Fee Clause Interpretation: Defendant Lender Entitled To Fee Award Under Deed Of Trust Fees Clause For Winning Conversion Claim Against Plaintiff’s Assignee

Fees Clause Was Broad Enough To Encompass Conversion Claim And Assignees Were “On The Hook.”

            In Sanchez v. El Monte Investments, LLC, Case No. B276423 (2d Dist., Div. 5 Mar. 27, 2018) (unpublished), former property owner sued her lender for conversion of certain insurance proceeds retained by the lender after fire damage to the property following a court order that lender was entitled to the proceeds.  Former owner eventually assigned her claim to her attorneys, who lost at trial and were ordered to pay lender’s attorney’s fees of $35,525 (out of a requested $42,350) under a deed of trust fees provision.  The fees clause obligated former property owner “to appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of [lender]; and to pay all costs and expenses, including … attorney’s fees in a reasonable sum, in any action or proceeding in which [lender] may appear, and in any suit brought by [lender] to foreclose this deed.” 

            Appellant law firm appealed, but the fee award stood.  The appellate court agreed that the conversion claim fell within the ambit of the broad deed of trust clause, and that the law firm as assignee had to bear the burdens as well as the benefits of the assignment (inclusive of the adverse fee award).

Costs, Fee Clause Interpretation, Section 1717: Successful Attorneys On Contract Claim Properly Granted Fees; Successful Plaintiff On Tort Claims Properly Denied Fees; And Plaintiff Improperly Denied Costs As Prevailing Party With Net Judgment In Malpra

Many Cross-Over Fees And Costs Issues Considered By Appellate Court In This One.

            In Davidson v. Southwick, Case No. E066978 (4^th Dist., Div. 2 Mar. 26, 2018) (unpublished), plaintiff client successfully won a malpractice action based on various torts but lost a contract claim against certain attorney parties, winning a compensatory jury verdict of $48,382.93.  On appeal, that judgment was reversed down to $4,804 on causation grounds.  The trial judge denied client any fees and costs, while awarding fees to the attorney parties under the retainer agreement and Civil Code section 1717.

            Plaintiff’s appeal of these rulings resulted in an appellate determination that she should have been awarded costs.

            With respect to the fee awards, the operative retainer agreement fee provision was narrow in scope, applying only to “an action or proceeding to enforce any provision of this [Retainer] Agreement.”  Because of this narrow breadth, client’s wins on tort claims were not “on the contract” under section 1717 (justifying a denial of fees), contrasted with attorneys’ winning on the contract claim so as to be entitled to fees (although the trial judge only awarded $10,000 out of a requested $77,800, apportioning fees such that the award only related to contractual work).

            However, plaintiff did win on the argument she was erroneously denied routine costs.  She was the prevailing party as far as a “net judgment,” and had filed a memorandum of costs (which, even if premature, was a procedural irregularity causing no prejudice to the other side).  Plaintiff was not entitled to expert witness fees in connection with her fee motion, because expert fees of this nature are not recognized as allowable costs.

Fee Clause Interpretation/Prevailing Party: Fifth District Reverses Costs Denial, Remands For Redo On Fee Clause Interpretation, And Reverses 128.7 Sanctions Award

Appellate Court Did De Novo Review On Most Issues.

            In a fairly lengthy decision, the Fifth District basically reversed trial court determinations on fees and costs issues in Johnson v. Johnson, Case No. F073191 (5^th Dist. Feb. 26, 2018) (unpublished), involving a dispute between siblings arising out of their real estate partnership where the partnership agreement stated the prevailing party was entitled to recover attorney’s fees “actually expended” if “litigation is instituted with respect to any matter regarding the covenants in this Agreement.”  The lower court determined the sister was the prevailing party, awarding her costs and about $135,000 in attorney’s fees.  Brother appealed, arguing he was the prevailing party because the jury awarded him $12,822 on a breach of contract claim despite the fact sister won a defense verdict on three tort claims submitted to the jury.

            First, with respect to the costs award, brother was indeed the “prevailing party” under CCP § 1032 because he obtained a net monetary recovery such that sister was erroneously awarded costs and he was erroneously not awarded costs.

            Second, on the question of attorney’s fees, the appellate court did agree that all the four causes of action submitted to the jury, both the tort and contract claims, were subject to fee recovery, but under CCP § 1021 rather than Civil Code § 1717.  With this in mind, brother made a sufficient legal showing on appeal that he actually prevailed because he was awarded contractual damages by the jury and he achieved prelitigation objections with a financial benefit to him of over $300,000.  So, a remand was in order to gauge if he did prevail given the reviewing court’s interpretation of the fees clause.  (On this issue, the appellate court determined that “actually expended” meant amounts actually paid by the litigant.)

            Finally, on the sanctions issue, the trial court did not provide the mandatory 21-day safe harbor notice required in its OSC order and did not issue as OSC describing the specific conduct to be potentially sanctioned with required specificity.

            Brother did well to appeal, to say the least. 

Fee Clause Interpretation/Section 1717: Fifth District, In Split Decision, Decides That Permissive Fee Clause Is Enforceable By Its Terms, With Section 1717 Not Applying

Dissent Argues That Section 1717 Does Have Precedence In This Situation, So That Fees To Prevailing Party Should Be Determined Upon A Remand.

            In City of Dinuba v. Universal Biopharma Research Institute, Inc., Case No. F072497 (5^th Dist. Feb. 20, 2018) (unpublished), City of Dinuba filed an unlawful detainer action against two defendants, although the Biopharma defendant was not named as the tenant under the commercial lease.  A jury found that Biopharma was a not a party to the lease and not liable to City.  Biopharma moved for attorney’s fees as prevailing party (no one disputed this) to the tune of about $197,000 under a fees clause, but one which was “permissive” in nature, to wit: “In the event of any proceedings brought by either party against the other under this lease, the prevailing party may be entitled to recover the fees of their attorneys in such action or proceedings for such amounts as may be adjudged reasonable attorney’s fees.”  The trial court, interpreting this clause as discretionary, denied fee recovery, prompting an appeal by Biopharma.

            The Fifth District affirmed, but in a 2-1 decision drawing a lengthy dissent by Justice Meehan.

            The majority concluded that CCP § 1021 allows the parties to craft their own conditions for an award of attorney’s fees such that Civil Code section 1717 does not apply to discretionary attorney’s fees so as to lead to a different result.  Put another way, the majority believed section 1717 applied only to mandatory fee clauses.

            Justice Meehan did not buy the majority reasoning in her dissent.  In an extended discussion of jurisprudence under section 1717, in a situation she characterized as being a “case of first impression,” Justice Meehan concluded that (1) CCP § 1021 cannot override Civil Code section even for “permissive” fee clauses, and (2) the “may” language in the clause could be interpreted to only confirm that it does not apply to non-contract situations (the law under section 1717).  She did argue that the “may” language was void and had to be replaced with the statutory terms required by section 1717.  Here is her policy-based, bottom line reasoning:  “Without the mandatory application of section 1717 to all contractual fees clauses to enforce the contract, parties are free to enter into unilateral agreements, craft their own definition of prevailing party and create their own requirements for reasonableness.  Courts have no clear standards independent of section 1717 by which to resolve disputes on those matters.  The statute’s goal of uniform and evenhanded treatment of attorney fees awards will be defeated and those in unequal bargaining positions will again be exposed to the deceptive and oppressive tactics the statute was designed to eliminate.  This result is unwarranted ….”

(Dissenting Slip Op. at 4.)  She would have remanded the matter to allow the trial judge to fix a reasonable fee award in Biopharma’s favor.

Fee Clause Interpretation: Trial Judge’s Award Of Fees Based On Promissory Note Fees Clause Was Erroneous

$53,637 Contractual Fees Award Went POOF! On Appeal.

            In Clark v. Delay, Case No. D072856 (4^th Dist., Div. 1 Jan. 19, 2018) (unpublished), plaintiff filed suit over a partnership dissolution dispute mainly involving the claim that plaintiff did not get insurance proceeds under a buy-sell type of alleged oral arrangement.  Among other documents, there was Note carried back by defendant so that plaintiff could purchase defendant/her husband’s partnership interest.  The Note had the following fee provision:  “Should suit be commenced or an attorney employed to enforce the payment of this note, I agree to pay such additional sum as the court may adjudge reasonable as attorney’s fees in said suit.”  Defendant ultimately defensed plaintiff’s claims hinged on the lower court’s determination that he failed to present sufficient evidence about an oral modification to dissolution documents relating to the insurance issue.  The trial judge then awarded Defendant $53,637 in attorney’s fees under the note fees clause.

            The fee award got reversed as a matter of law and stricken from the judgment on appeal.

            Although assuming that the note was incorporated by reference into the main dissolution agreement, the problem for the defense was that the dispute did not involve enforcement of payment obligations under the note but ancillary claims under which plaintiff would not have been able to recover fees even had he won.  The narrowness of the clause steered the determination in this appellate opinion.